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Comment by anon1385 | Hacker News Reader

>none of whom provably did anything wrong

The idea that executives were unaware of the vast amount of fraud that was endemic in the mortgage industry is laughable. We even have documentary evidence from people inside who repeatedly raised these issues but were ignored or fired.

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Being aware in general terms of widespread fraud in the mortgage industry and selling mortgage backed securities anyway does not arise to the level of a crime. Say everyone in the tech industry knows that those Instagram guys are sketchy as shit. But there's still nothing illegal about me turning around and then selling you Instagram stock while telling you it's a wonderful investment.

About 4 years ago the government tried to prosecute an employer for having illegal immigrants using that basic logic. The employer said he suspected that about half his employees had forged documents, but he obviously didn't know of any specific case. (The Feds trapped him by telling him they were doing a murder investigation and asking him for information about his employees. Don't talk to cops.)

IIRC the prosecution failed, although they did put the guy through the wringer in the meantime.

You are focusing on a very specific thing (selling mortgage backed securities) as if that was the only thing that went wrong before, during or after the financial crisis. Are you aware of how widespread foreclosure fraud was? Why were Chase executives (to pick an example) not made accountable for that? If I was caught defrauding people out of their homes I would see jail time.

Foreclosure "fraud" is when a bank cannot produced the signed promissory note in a foreclosure proceeding. Proving actual fraud requires proving, beyond a reasonable doubt, fraudulent intent: that the the bank intended to defraud the homeowner by foreclosing on a property it knew it didn't own. But in these cases it's clear that there was no fraudulent intent. It was careless filing of paperwork. In this electronic age, transferring a mortgage still requires handing over that signed promissory note. It's obvious to anyone that what happened is that when banks bought millions of mortgages from loan originators, the electronic records showed the correct transfers but a bunch of the paperwork got lost along the way. Certainly, that explanation is plausible enough that there's no way you're going to convince a jury, beyond a reasonable doubt, that it isn't what happened.

You don't want to call it fraud? Ok, what about criminal negligence then. These executives knew exactly what was going on, and by any reasonable standard should have known the harm they were causing. This is especially applicable if whistleblowers were ignored or silenced.

Software companies knowingly ship software chock full of bugs that results in millions if not billions of dollars of lost profits, lost time, etc. Does that rise to the level of criminally negligent?

it's the specific, core and obvious portion of not having the right one and only legal ownership piece of paper. not that somewhere a bug exists, somewhere a mistake was made, but the mistake was on the order of Microsoft shipping 1 in 1000 versions of word that you cannot print or save.

I don't doubt that the vast vast majority if these people did actually owe money on their mortgages but if you cannot prove it, the market then gets to sort out those companies who can look after the important things from those who cannot.

the market should winnow out fools and incompetents first, not have them compensated by the courts.

First, the software industry has done worse than ship 1 in 1000 versions of something that can't print or save.

Second, software companies often ship bugs knowing exactly what those bugs are.

Third, bringing a foreclosure lawsuit without the promissory note is not per se fraudulent. It's the homeowners job to raise the defense of asking the mortgage holder to show the document. It's only fraud if you intend to defraud the homeowner by foreclosing on a mortgage you know or suspect you don't own.

I'm not saying that banks fraudulently set out to make people homeless - I am saying they were incompetant in losing the certificates (or buying mortgages without them). and that I would favour allowing incompetence to have a market based effect on those who practise it - instead of using the law to protect the companies.

companies ship products with know bugs in in a calculated risk that firstly the bugs do not violate laws and contracts, and second the bugs have no market based effect. if a software company ships with those bugs then they display same levels of in ompetant e

and yes the ratio is probably wrong

>The idea that executives were unaware of the vast amount of fraud that was endemic in the mortgage industry is laughable.

You can't prosecute someone on the idea something is laughable. You need some kind of evidence.

A lot things that seem like terrible ideas are not necessarily fraud, at least, not in the legal, criminal sense of the word, because it's not always illegal to make bad decisions with money.

It's not illegal to loan money to someone who can't pay it back--which is the bulk of the documentary evidence that I've seen. If a bank knows I faked my income statement but lends me money anyway, that is a bad decision, but it's not criminal fraud (except maybe by me!).

It's not illegal to sell securities that might lose money. It's not illegal to buy securities that might lose money.

It would be criminally fraudulent to materially misrepresent the facts and risks--for example for a bank to say "we verified the income on all these mortgages", or "I guarantee this mortgage backed security will not fail."

But except for a few rare cases, that's not what happened. It was ratings agencies--3rd party companies--who decided to rate some mortgage-backed securities AAA without knowing what was in them. But again, that's not against the law because the ratings agencies are just private companies expressing an opinion.

NOTE - I'm not defending what happened because it was obviously stupid. And I'm not saying that no criminal fraud occurred, because some did.

I'm just an advocate for people understanding what is the actual state of the law, vs. what seems like it "should" be fraud.

There are thousands of documented cases of actual fraud, which were not pursued - almost as if the AGs don't want justice. They investigate practically nothing, and when the truth comes out (accidentally or by way of a whistleblower), they move quickly to close it with a slap on the wrist which is usually amounts to a fine far below the damage to 3rd parties.

Almost everything about the mortgage business is a fraud from one perspective: MERS. I don't have time to find the terse summary, but http://market-ticker.org/akcs-www?post=188061 should give you some idea about what the problem is.

The basic problem: without actually recording a transfer at the county registry, a mortgage cannot be given the preferential security treatment. Almost none of the mortgages sold had their title transfer registered -- this would need to be done every time the mortgage changed hands, and incurs a non trivial cost. Instead, the banks made their own law, created a corporation called MERS, which supposedly owns everything, and acts as an agent of the MERS-registered owner. However, this is not legal - not for foreclosing, not for the IRS, not for the counties.

Congress' way to fix it is to make it retroactively ok for the banks to make their own law. I'm not following closely, so I'm not sure if that has indeed happened - but I am sure that the whole MERS thing is illegal, and that AGs (except perhaps in Louisiana) try to fix it by ignoring it.

So basically, you want banking CEOs prosecuted because they constructed an alternate mortgage registry that has lower transaction costs than the existing system?

tl;dr; the financial crisis happened, here is something unrelated which might be technically illegal. Lets get em!

... an alternate mortgage registry that has lower transaction costs than the existing system?

More like "an alternate mortgage registry that has allowed entities to initiate foreclosures even if they don't hold the mortgages".

If you actually spend time reading, you'll see that they constructed an alternate mortgage registry that has lower transaction costs that the existing system, but violates (and fundamentally subverts) the law of the land, the tax code, and thus also defrauded investors because when (assuming it does) the IRS and the counties ask everyone to make things right, the investors are going to be the ones holding the bag.

And that's just one relatively minor aspect of the mortgage business. Everywhere you look, there's significant violations of laws (robosigning, co-mingling of assets) with essentially NO law enforcement interest in finding the responsible parties.

> might be technically illegal. Lets get em!

"Technically" illegal? At the very least, they defrauded counties on registration fees (adding up to a few hundred of millions, perhaps billions).

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